Managing a 401(k) plan requires adherence to fiduciary responsibilities outlined under ERISA. Employers often seek professional fiduciary services to ensure compliance and reduce liability. However, not all fiduciaries have the same level of responsibility. The three primary fiduciary designations—3(16), 3(21), and 3(38)—each play different roles in plan administration and investment management.
This guide explores the differences between 3(16) vs. 3(21) vs. 3(38) fiduciary responsibilities, helping employers determine the right fiduciary support for their retirement plans.
What Is a 3(16) Fiduciary?
A 3(16) fiduciary serves as the plan administrator, taking on critical administrative and compliance duties. Responsibilities include:
- Filing Form 5500 and other regulatory documents.
- Overseeing participant transactions, including distributions and loans.
- Ensuring compliance with IRS and DOL regulations.
- Managing required notices and disclosures to employees.
By assuming these responsibilities, a 3(16) fiduciary reduces the employer’s administrative burden and potential liability.
What Is a 3(21) Fiduciary?
A 3(21) fiduciary acts as an investment co-fiduciary, providing guidance on investment options but not making final decisions. Key responsibilities include:
- Recommending investment options for the 401(k) plan.
- Conducting ongoing investment monitoring and due diligence.
- Advising the employer on plan investment decisions.
However, the final investment decision remains with the employer or plan sponsor, meaning the employer retains fiduciary liability.
What Is a 3(38) Fiduciary?
A 3(38) fiduciary is an investment manager with full discretion over the plan’s investments. Their role includes:
- Selecting, managing, and replacing investment options.
- Handling investment-related compliance and fiduciary oversight.
- Reducing the employer’s liability by taking full responsibility for investment decisions.
This fiduciary designation offers the highest level of investment protection, shifting fiduciary liability away from the employer.
Comparing 3(16), 3(21), and 3(38) Fiduciaries
| Fiduciary Type | Role | Responsibilities | Employer’s Liability |
|---|---|---|---|
| 3(16) Fiduciary | Plan Administrator | Handles compliance, filings, and plan management | Low |
| 3(21) Fiduciary | Investment Advisor | Provides investment recommendations but does not make decisions | Medium |
| 3(38) Fiduciary | Investment Manager | Has full discretion over plan investments | Minimal |
Choosing the Right Fiduciary for Your 401(k) Plan
Employers must assess their needs when selecting a fiduciary:
- If reducing administrative burdens is the priority → A 3(16) fiduciary is ideal.
- If investment guidance is needed but the employer wants final say → A 3(21) fiduciary is appropriate.
- If outsourcing investment decisions to an expert is preferred → A 3(38) fiduciary is the best choice.
Conclusion: Protect Your 401(k) Plan with the Right Fiduciary Support
Understanding the differences between 3(16) vs. 3(21) vs. 3(38) fiduciaries helps employers make informed decisions about their 401(k) plan management. Each fiduciary type serves a unique role in minimizing compliance risks and ensuring a well-managed retirement plan.
Need Fiduciary Support for Your 401(k) Plan?
Contact WITTROCK FINANCIAL GROUP at service@lifeaudit101401k.com or call 800-725-8780 to discuss your fiduciary options. Connect with Chip Wittrock, Financial Advisor, or Renne Wittrock, Business Development Manager, at Wittrock Financial, 1719 Hill Avenue, Spirit Lake, Iowa 51360. Our team specializes in expert 401(k) administration services to help businesses remain compliant and optimize their retirement plans.
